Innovation in Rural Finance in Tanzania

This paper reviews innovations and adaptations in rural finance in Tanzania. It draws lessons that can contribute to future policies and strategies to promote rural finance.

The paper examines historical developments and the evolving policy framework and shares experiences and lessons that can be drawn from rural financing practices to date. It also identifies innovations in rural finance and their policy implications. Findings include:

• Direct interventions in rural finance to stimulate growth and reduce poverty have failed;
• Institutional design and adherence to appropriate policies are more likely to succeed in terms of sustainability and greater institutional outreach;
• New approach sees the government's main task as creating a conducive environment for private intermediaries in rural financial markets;
• MFIs offer the potential for sustainability and growth;
• Scaling up microfinance will require partnership between civil society, government institutions and donors to provide seed resources.

Putting in place low cost and tailor-made delivery systems, close monitoring using established institutions in rural areas, and management autonomy and incentive structures for MFIs will speed up the development of rural finance in Tanzania.